Powerscourt

By Powerscourt on 24/04/2020

Powerscourt Coronavirus Briefing – 24 April 2020

ANALYSIS

Many stock indices around the world fell on Thursday and overnight in Asia on disappointing results in a Chinese clinical trial of remdesivir, what had been the most highly regarded potential coronavirus drug from Gilead Sciences. In a 237 person study, remdesivir was shown not to have improved patients’ conditions or to have removed the pathogen from the bloodstream, dealing a blow to what had appeared a potential treatment.

As the race to develop a vaccine accelerates, the world’s largest fund managers, among them BlackRock, Fidelity Investments and Aviva, have said they want pharmaceutical companies to work together on developing a vaccine. They have urged drug developers that the greater good to mankind in building a vaccine, alongside the economic imperative, should outweigh commercial competition between companies. Some drug giants, including GlaxoSmithKline and Sanofi, have already agreed to collaborate on a potential vaccine.

Around the world, lawmakers continue to grapple with how to manage economic support for nations reeling from the crisis.

US lawmakers on Thursday approved a nearly $500 billion economic package which provides support to small businesses and hospitals and funds further testing.  European leaders met by video on Thursday with a split developing between France, Spain and Italy who want a rescue package for struggling regions involving “perpetual” (non-maturing) bonds, and the northern European countries, who want a structure based on loans.

In the UK, coronavirus tests can now be booked online from today by millions of essential workers as the government scrambles to reach its daily 100,000 testing target and with pressure mounting to outline an “exit strategy” to the nation. The Scottish First Minister, Nicola Sturgeon, ratcheted up the pressure when she outlined a framework for how she planned to approach relaxation in Scotland and urged the UK government to have a “grown up” conversation with the British people.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Nestle

The food and drink processor reported organic growth of 4.3% and total sales down 6.2%. CEO Mark Schneider said the crisis is “far from over” and the company “will face many uncertainties in the coming quarters”. The group is maintaining its FY 2020 guidance “for the time being” and expects continued improvement in organic sales growth. The group stressed its community support work, including extending payment terms, suspending rental fees for machines and offering free products.

Pret a Manger

CEO Pano Christou has said in an interview that Pret will “still be there” at the end of the crisis, although the business might look smaller. He said the company has enough cash to see it through lockdown but needed funding to develop new systems and products for after the virus. The FT reported last night that the café chain is in talks to raise a €100m loan from banks.

Burberry

The fashion house announced it will continue to maintain base pay for all employees unable to fulfil their roles, will not rely on government support in the UK and its leaders will take a voluntary 20% pay cut from April to June. It said its trench coat factory in Castleford is manufacturing non-surgical gowns to supply to the NHS as well as sourcing masks through its supply chain. CEO Marco Gobbetti said “While we continue to take mitigating actions to contain our costs and protect our financial position, we are also committed to safeguarding jobs and supporting the relief efforts during this global health emergency.”

Frasers Group

The retail group announced it has “resolved all remaining matters” related to its tax dispute with the Belgium Tax Authority, by settling for an “immaterial amount”. The group said it has “taken the commercial decision to settle these matters now given the uncertainty is affecting Frasers Group’s banking lines and its suppliers’ credit insurance where, due to store closures as a result of the current Covid-19 crisis, Frasers Group understands the majority of new credit insurance cover has been withdrawn for the time being”. The group also noted it has not been accepted as eligible for the CCFF.

 

Financial Services & Real Estate

Persimmon

The volume housebuilder announced that it will being a phased re-opening of its construction sites on 27 April. It said construction work had continued in “certain limited instances to complete the construction of new homes to ensure that no customers were left homeless”. The builder said its transition to home working had helped it secure more than 800 private sales in the five weeks ended 19 April

Hammerson

The shopping centre owner informed the market yesterday that Orion does not intend to complete its purchase of a portfolio of seven retail parks, which had been announced in February. Hammerson said it will serve a notice of completion if necessary, failing which it will take steps to terminate the agreement which would leave it with a £21m deposit.

Blackstone

The private equity giant reported its first quarterly losses since 2018. Its credit business and private equity business both saw large performance revenue falls. Founder Stephen Schwarzman said the figures are a “point-in-time valuation and not an estimate of the value we expect to realise”. He added that the current crisis is “much more formidable” than the 2008 crisis.

 

Industrials & Transport 

Lufthansa Group

The largest German airline said yesterday evening that travel restrictions have had a “significant impact” on earnings development in the first quarter, with group revenues falling by 18%. In March alone, revenues fell 47%. The group expects a considerably higher operating loss in Q2 given it is not possible to foresee when the airlines will be able to resume flight operations. The group said it does not expect to be able to cover capital requirement with further borrowings in the market and is therefore in “intensive negotiations” with governments regarding financing instruments.

Heathrow

The airport said yesterday that Fitch has revised the outlook on its Class A and B debt to negative from stable as well as Heathrow Finance’s outstanding notes to negative. Long-term credit rating is unchanged. CFO Javier Echave said “Prudent management and investment in the airport over the past decade  puts  Heathrow in a strong financial position – which Fitch have recognised with continued confidence in our future position. We’ve taken steps to reduce our cost base and reorganise our operation which will help us keep Britain’s hub airport operating and protect vital supply lines throughout this crisis.”

FirstGroup

The bus and rail group announced that it has accessed the CCFF scheme with a £300m issuance and is positioned to access a significant share of funding allocated to US states in support of intercity bus services. CEO Matthew Gregory said “The support we have received from governments and our customers is testament to the importance of the services we provide. The long-term fundamentals of our businesses remain sound, and we will continue to take all necessary measures to ensure that the Group emerges from this unprecedented situation in the most robust position possible to deliver our strategic plans.”

Compagnie St-Gobain

The building materials company reported like-for-like sales down almost 5% in the first quarter and confirmed it would pay no dividend in respect of 2019. Chairman and CEO Pierre-Andre de Chalendar said “Given the impact of the global economic crisis caused by the coronavirus, the Group expects a challenging second quarter 2020 before a recovery in the second half. Due to the scale of the current uncertainties and the very different patterns of recovery from one country to the next, the Group is not currently in a position to give an earnings outlook for 2020.”

 

TMT

Pearson

The publishing and learning company reported first quarter results consistent with its March update on the potential impact of the pandemic. The company has not furloughed staff and is instead redeploying as far as possible. Management are taking pay cuts which will go to Covid-19 charities, with the CEO and CFO taking 25 and 20% cuts, and the Chair and NEDs taking 50 and 25% fee reductions. The company is adjusting strategy by accelerating a shift to digital in US Higher Education and investing in online education. CEO John Fallon said “When the threat of the pandemic eventually eases, it will be even clearer that the future of learning is increasingly digital.”

 

Regulatory 

Financial Conduct Authority

The FCA confirmed it will be introducing a package of measures to support consumer credit customer facing payment difficulties. The measures are a 3-month payment freeze for motor finance, buy-now pay-later, rent-to-own and pawnbroking agreements. High-cost short term credit payments will be frozen for one month with no additional interest. Interim CEO Christopher Woolard said “Many firms are already working with their customers, but these measures ensure all consumers affected by the coronavirus emergency can apply for a temporary freeze on their payments.”

 

IN THE NEWS

Sunak bends to pressure for 100% guarantees on small business loans – Financial Times

More than one in four staff laid off, official figures show – The Times

Coronavirus lockdown tips UK economy into biggest slump on record – The Guardian

 




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